Things To Know Before Filing Bankruptcy For Future Homebuyers

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This ARTICLE On Things To Know Before Filing Bankruptcy For Future Homebuyers Was PUBLISHED On November 19th, 2020

There are Things To Know Before Filing Bankruptcy.

  • Many Americans are still under the impression that bankruptcy is very bad
  • They often do not know the benefits of bankruptcy and how you can get credit after bankruptcy
  • Bankruptcy rates soared after the 2008 financial crisis
  • However, many Americans re-established their credit after bankruptcy
  • Many went on to achieve high credit scores, get unsecured credit cards, get auto loans, and qualify for a mortgage and become homeowners
  • With the current state of the U.S. economy with the coronavirus pandemic crisis, bankruptcy filings are expected to skyrocket
  • Consumers can qualify for credit, car loans, and a mortgage after bankruptcy
  • Bankruptcy is a federal law that gives the consumer a fresh financial start in life

In this article, we will discuss and cover Things To Know Before Filing Bankruptcy For Future Homebuyers.

Things To Know Before Filing Bankruptcy: Is Bankruptcy For Me?Things To Know Before Filing Bankruptcy

Who benefits from bankruptcy:

There are two types of bankruptcy.

  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy

There is also Chapter 11 Bankruptcy which we will not cover in this blog.

Typical reasons consumers file bankruptcy is due to the following:

  • Unemployment due to job loss
  • Loss of business and/or business failure
  • Financial mismanagement
  • Substantial wage decrease where they can no longer meet the minimum debt payments
  • Divorce
  • Medical issues
  • Creditors trying to sue you and obtain judgments
  • Outstanding judgments
  • Creditors threatening wage garnishment 
  • Economic reasons such as a recession, depression, or the recent coronavirus pandemic crisis

In general, consumers who have been struggling to manage their debts and do not see the light at the end of the tunnel may consider bankruptcy. Bankruptcy is not the end of the world. Once someone files bankruptcy, it can impact the credit score by as much as 240 points. However, consumers can re-establish their credit the minute their bankruptcy gets discharged. There are ways of rebuilding your credit after bankruptcy and obtain a credit scores over 700 FICO in six to twelve months after the discharge.

Chapter 7 Versus 13 Bankruptcy

Chapter 7 Bankruptcy is for consumers without any assets.

  • It is also referred to as total liquidation
  • Consumers who have little to no income and/or little to no assets would benefit from Chapter 7 Bankruptcy
  • The petitioner need to pass the Chapter 7 Means Test
  • You are limited on the maximum income you can make to be eligible for Chapter 7 Bankruptcy
  • All debts are discharged with Chapter 7 Bankruptcy
  • Federal government loans, tax obligations, student loans, child-support, alimony, fraud, and government fines cannot be discharged in bankruptcy
  • All other debts can be included in bankruptcy
  • Once Chapter 7 is filed, the bankruptcy is normally discharged in 90 days
  • Consumers who are being sued, get wages garnished, have creditors enforce judgments, and/or assets frozen are great candidates for bankruptcy
  • Consumers who have assets to protect such as property, business, and/or other assets can keep the assets and qualify for Chapter 13 Bankruptcy repayment plan
  • Chapter 13 Bankruptcy benefits homeowners who have a home that is about to enter the foreclosure process
  • Chapter 13 Bankruptcy will halt the foreclosure proceedings
  • The Bankruptcy Trustee can allow the petitioner to catch up the delinquent mortgage payments in Chapter 13 Bankruptcy
  • Bankruptcy is a federal law that protects consumers rights and gives them a second chance

Once the bankruptcy has been discharged, the consumer has no more debts and a fresh financial start.

Things To Know Before Filing Bankruptcy: What Is Debt Settlement?

What is the difference between Chapter 7 and 13 Bankruptcy

Bankruptcy is not for everyone who has bad debt.

  • If you own less than $10,000, debt settlement may be a better option
  • You may want to get a second job and try to pay down your bad debts with a written payment plan
  • Prior to filing for bankruptcy, see if you can readjust you spending habits and take a good look at your budget
  • Consult with a credit counselor to see what other options you have
  • Consumers can visit the National Foundation for Credit Counseling website for a directory of certified credit counselors
  • Contact your creditors and see if they can offer you alternatives to bankruptcy
  • Some options include debt settlement which is settling your debts for less than what is owed
  • Other options may be getting a gift from a family member
  • Many consumers have large income tax refunds where they can use those proceeds to settle their debts
  • Consumers with larger bad debts such as judgments may need to file bankruptcy
  • The statute of limitations on judgments depends on the state where the judgment was awarded
  • In most states, judgments are normally good for 10 years and can be renewed after 10 years for another 10 years
  • If the judgment is a smaller amount, you can enter into a written payment agreement with the judgment creditor

Before pulling the trigger on bankruptcy, explore other payment options. 

James Miller of Miller and Miller Bankruptcy Attorneys in Milwaukee, Wisconsin said the following:

Be aware that you will be required to complete pre-bankruptcy credit counseling with a counselor who has been approved by the court. The U.S. Department of Justice has a list of approved agencies. The objective of working with a credit counselor is to see if you could possibly avoid going through bankruptcy as a means to resolve your debt struggle.

It is best recommended that you hire an experienced bankruptcy attorney if you decide to file bankruptcy. Petitioners can file bankruptcy on their own, but having an attorney to represent you is highly recommended.

Debts That Cannot Be Discharged In Bankruptcy 

Not all debts can be discharged in bankruptcy. Federal and certain state taxes, alimony, child-support, federal debt, federal student loans, and fines owed to government agencies cannot be discharged in bankruptcy.

According to Jaime Miller of Miller and Miller Law LLC of Milwaukee, Wisconsin said the following:

In addition, some debts are not automatically dischargeable, so a creditor could object to your request and win. Some types of debts that fall under this category are luxury items purchased on a credit card that are owed to one creditor, costing more than $650 and charged within three months of filing for bankruptcy, and debts that were incurred as a result of fraud.

Any debts that are the outcome of fraud and/or fraudulent activities are not dischargeable in bankruptcy.

Qualifying For A Mortgage After Bankruptcy

Which means debts that cannot be released from bankruptcy

Homebuyers can qualify for a mortgage after bankruptcy. Government and conventional loans have mandatory waiting period requirements after bankruptcy. However, just meeting the mandatory waiting period does not guarantee mortgage loan approval. Mortgage lenders want to see borrowers have re-established credit after bankruptcy. Late payments after bankruptcy and/or foreclosure are frowned upon by lenders. Most lenders will not approve a borrower with late payments after bankruptcy. One or two late payments may not be a deal killer if the borrower has extenuating circumstances that can documented. Examples of acceptable extenuating circumstances are loss of job and/or medical issues. Divorce is not considered extenuating circumstances. Gustan Cho Associates has Non-QM loans where there are no waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, or a short sale. For more information about the waiting period requirements after bankruptcy and to qualify for a mortgage after bankruptcy, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The Team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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